TTEC Holdings Inc (TTEC) 2014 Q4 法說會逐字稿

Will come to TeleTech's fourth-quarter and full-year earnings conference call. I would like to remind all parties that you will be in a listen-only mode until the question-and-answer session. This call is being recorded at the request of TeleTech.

I would now like to turn the call over to Paul Miller, TeleTech's Senior Vice President and Corporate Treasurer. Thank you, sir. You may begin.

Yes. Good morning and thank you for joining us today. TeleTech is hosting this call to discuss its fourth-quarter and full-year 2014 results ended December 31. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer.

Yesterday, TeleTech issued a press release announcing its financial results for its fourth-quarter and full-year 2014. While this call will reflect items discussed in that document, we encourage all listeners to read our most recent Form 10-Q and 10-K.

Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based upon management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new information that may become available.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those described. Such factors include, but are not limited to, reliance on several large clients; the risks associated with lower profitability from, or the loss of one or more significant clients; execution risks associated with ramping new business or integrating acquired businesses; the possibility of asset impairments and/or restructuring charges; and the potential impact on the financial results due to foreign exchange rate fluctuations.

For a more detailed description of our risk factors, please review our most recent Annual Report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section.

I will now turn the call over to Ken Tuchman, our Chairman and Chief Executive Officer.

Thank you, Paul, and good morning to everyone. We finished the fourth-quarter and 2014 on a strong note. The full-year 2014 non-GAAP revenue was $1.27 billion on a constant currency basis, up 6.3% over the prior year. In the fourth quarter, non-GAAP revenue was $345 million, up 8.4% over the year-ago period. Full-year non-GAAP operating margins were 8.4% in 2014 to 9% the prior year. In the fourth quarter, the non-GAAP operating margin was 9.4% versus 10.4% in the year-ago period.

In 2014, operating margins reflected planned incremental investments in sales and R&D, increased acquisition-related amortization expenses, and the variability in our Technology Services segment as we reposition the business for sustained profitable growth. This includes the investments being made to support the growing client demand for our cloud-based offerings.

Our strong bookings momentum continued in the fourth quarter, resulting in a strong annualized contract value bookings of $440 million in 2014, a 21% increase over 2013. New business signings in 2014 continue to favorably span across all four segments, with 48% coming from CSS, CTS, and CGS, an increase of nearly 20% over 2013. Last, we are especially proud that we achieved the highest client net promoter scores and client retention rates in our Company's history.

Four years ago, we started a journey to transform our customer management business into a platform for competitive differentiation. We saw a new age coming where digital, social, mobile, and analytics and cloud technologies would converge to fundamentally alter the dynamics between customers and the companies they choose to do business with. As this era of unprecedented digital change began to unfold, we were designing our holistic customer experience growth platform, prudently deploying resources to develop it, and executing our strategy.

Four years later, we are a very different company, operating at the epicenter of an exciting and challenging new world. Our client base, especially among the Global 1000 companies, has grown, and our relationships have become more strategic and outcome-focused. Our industry penetration has changed from highly commoditized verticals that view customer experience as a cost to higher growth industries that understand customer experience as a value-driven differentiator.

Our revenue mix has evolved beyond our legacy voice offerings to include an integrated platform combining customer experience strategy, omnichannel technology solutions, and data-driven care and growth services. The way we measure success with our clients has changed from lagging indicators of average handle time and cost per minute to leading indicators of growth in the customer base and increase in customer lifetime value. Because of all this progress, we are earning the role of a trusted and valued partner delivering measurable outcomes for our clients.

Why has it happened? Quite simply, in the new world, the old way of doing things doesn't cut it anymore. Smart devices have changed everything. Let me share a few statistics.

In a recent PMBC Report, 81% of CEOs surveyed say mobile technologies are critically important for customer engagement in their organizations. Altimeter just uncovered a breaking new trend that reports 50% of all online shopping is now happening on mobile devices. Juniper Research noted that the wearable devices market, which literally has just begun, is estimated to grow from $1.4 billion to $19 billion over the next three years. And looking further out on the horizon, the Wall Street Journal reported that the market for connected car services is projected to be $152 billion by 2020.

This blurring of lines between people and their technology is having a dramatic impact on everything that has to do with how customers interact with brands. The world has changed overnight. Customers are booking vacations on apps, hailing cabs on their mobile phones, making investment decisions over video, and buying cars online. They have the power of the digital world at their fingertips. And they are expecting that the companies will be available to serve them whenever and wherever they want.

Welcome to the technology-enabled experience economy where we as customers are demanding to be recognized as valuable individuals we are. All across the globe, customers are gravitating towards brands that make things easy and enjoyable. They don't have the patience for anything less. The power shift from companies to customers is much more than a technology shift. It demands an entirely new philosophy where companies put the customer at the epicenter of everything they do.

In this new customer-focused digital environment, companies are rushing to rethink how they acquire, serve, and retain customers. In a recent Forrester survey, 74% of business leaders said that improving the customer experience is a high or critical priority. That is where TeleTech comes in.

We built a robust scalable platform that enables our clients to reorient their business and embed their customers into the heart of everything they do. It combines strategy, process, technology, analytics and operations, to help clients differentiate their brand experience at every touch point; build deeper customer engagement with each integration, and grow profitably through creative, data-driven, digital demand-generation programs. And the payoff can be dramatic. Across the entire customer journey, we're helping clients reduce their cost, improve profitability, and increase shareholder value.

Let me give you some select examples of how we are driving customer experience, engagement and growth for leading companies across the globe. In healthcare, where we've more than doubled our business year-over-year, we are proud to support six of the 10 largest payers. We are helping them transition from their old model of using legacy batch processes to serve companies, to a new model that uses data to build meaningful relationships with individual customers. Our insight-driven acquisition and enrollment and onboarding programs are helping payers manage costs and improve the member experience.

In Financial Services, we are architecting omnichannel experiences that enable customers to originate and complete complex transactions. In telecommunications, we are using real-time analytics to spot trends in customer behaviors to reduce churn and improve topline growth. In computer technology, our search algorithms are driving digital demand for some of the largest electronic manufacturers and distributors in the world.

In retail, we are designing the in-store experience for luxury brands as well as mobile devices. In the automotive industry, we are supporting the customer journey every step of the way, from online search to model selection and configuration through financing. We've sold tens of thousands of cars over the Internet on an annual basis.

In the growing health and wellness category, we are changing the way people manage weight loss with our cloud-based proprietary technology that connects people in real-time with their health coaches. These are just a sample of the many ways we are applying our customer expertise to every touchpoint in the customer lifecycle.

We've shifted from a contact center to delivering sustainable business outcomes for brands across the globe. Our value proposition for customer experience transformation is simple -- we provide our clients with a holistic platform that weaves customer-centric vision to sustainable, repeatable results.

It includes a strategy that aligns the Company around the benefits of putting customers first; processes that nurture relationships with customers like their friends, not faceless, nameless account numbers; technology and analytics that personalize every interaction; and operations that bring empathy to the frontline. When all the pieces come together, and are synchronized, we help our clients deliver a truly human experience, one that anticipates the customer's needs, respects their time, appreciates their effort, and values their individuality.

Now let me update you on our progress executing against the four key strategic pillars that we outlined four years ago, namely to deliver profitable growth, increase market presence, accelerate innovation, and execute upon strategic and accretive acquisitions. Our strategy for delivering profitable growth starts with our GMI, Global Markets and Industries sales organization. Over the past 18 months, our GMI has been developing its industry-focused talent, expanding its reach across our business segments, and realizing favorable results, as demonstrated in our bookings performance.

Using a go-to-market strategy designed to address vertical-specific business challenges, we are not only building deeper relationships with our existing clients, but also attracting industry-leading new brands. And we have only just begun.

In 2015, we plan to increase our market presence by turning up the volume of further investments in our GMI verticals, geographies, and marketing. Our heritage of innovation continues to drive us forward, with introductions of new products and services that simplify and personalize the customer experience across every phase of the customer lifecycle.

It is noteworthy that we have been awarded over 100 global technology patents and have over 90 more pending. Introductions like our Search to Sales Platform Acquisition 360 are providing new ways for clients to increase revenue online. And our innovations in cloud-based omnichannel technologies that connect customers to brands any time, anywhere continue to gain traction.

Turning to acquisitions, we acquired nine companies over the past four years. With the addition of Sofica and rogenSi in 2014, these companies have increased our suite of offerings, clientele, global reach, talent and scale. We anticipate continuing to leverage M&A as one of our levers to drive our growth in 2015 and beyond.

Senior leaders across industries and geographies are leaning in and asking us for help creating differentiated customer experiences, driving increased engagement and loyalty, and providing unique and creative ways to grow the value of their customer relationships. Our clients choose us because they know that everything we do revolves around the customer.

Whether customers are swiping or Skyping, clicking or chatting, they expect to navigate intuitively across every channel, any place, any time, and be presented with a natural fluid journey that reflects their preferences and aspirations. Each interaction is a moment of truth that impacts their brand. Customers are seeking a simple, seamless dialogue. From this deep understanding of what matters most to customers, we've established a new business category that encompasses customer experience, engagement, and growth.

With 30-plus years serving billions of customers in over 80 countries, we have the experience and the ability to help clients in ways that others cannot. There is no one in the market today that has our knowledge, technology, acuity, and customer domain expertise. But it has not been easy. From our humble beginnings managing contact centers around the globe to becoming an international force for proprietary IP and blue-chip client base, we've invested decades of effort and spent hundreds of millions of dollars on our vision. We are well-positioned.

As this new era for business and customers unfolds, so too do we. We have the vision to see what's possible, the courage to push against current norms, and the resilience to bring together people and resources to break new ground. We are designing the strategy, building the capabilities, and earning the client trust.

We remain steadfast in our commitment to maximize shareholder value, through thought leadership, innovation, and profitable organic and inorganic growth. To this end, we are pleased with our Board's decision to increase the authorization under a long-standing -- under our long-standing share repurchase program, and initiate a semiannual cash dividend. This decision demonstrates the Board's confidence in the business and strength of our cash flows and balance sheet, while also aligning with our client, shareholder, and employee interest to invest in innovation and growth.

To say we have been busy is an understatement. I'm proud and thankful to our over 46,000 employees across the globe who, every day, are working with clients to bring our vision to life. My excitement about our future continues to grow. And I look forward to sharing our continued progress in the quarters to come.

I will now turn the call over to Regina.

Thank you, Ken, and good morning, everyone. I'll start with a few comments on our full-year 2014 performance and cover our fourth-quarter, and end with our 2015 guidance.

Our GAAP revenue was $1,242,000,000, an increase of 4.1% over the year-ago period. On a constant currency basis, 2014 revenue was $1,270,000,000, representing 6.3% year-over-year growth rate. Revenue from acquired companies in their first 12 months was $38 million, resulting in a 2014 full-year organic constant currency growth rate of 3.1% versus a negative organic revenue growth rate of 1.9% in 2013.

Our GAAP operating margin in 2014 was 7.8% versus 8.5% in the prior year. On a constant currency basis, and adjusting for restructuring and impairment costs, the operating margin was 8.4% compared to 9% in 2013. The operating income from acquisitions in their first year was $4.9 million.

It's important to note that the adjusted operating margin is impacted by 70 basis points of incremental sales and R&D investment, and 20 basis points of incremental expense related to the amortization of acquired intangibles. Pro forma'ed these amounts, the operating income margin was 9.3%.

The decline in CTS's operating income year-over-year had an additional 120 basis point impact on the consolidated operating income. We view the CTS operating decline as temporary and expect the operating margin to return to double digits by the end of 2015. While early in yielding its potential return, the $9.3 million of incremental investment, or 70 basis points of operating margin, was pivotal to our growth in bookings from $365 million to $440 million, and the increase in our backlog, going from 85% in 2014 to 88% as we enter 2015.

Turning to the fourth quarter of 2014, GAAP revenue was $338.2 million compared to $318.1 million in the year-ago period. On a constant currency basis, revenue in Q4 was $345 million, up 8.4% versus Q4 2013. The decline in CTS's revenue impacted our top-line growth by 190 basis points in Q4 2014.

Fourth-quarter revenue from acquisitions in their first year contributed $15.5 million, resulting in a 3.6% constant currency organic revenue growth rate. This compares to the prior year's 5.4%. Our fourth-quarter 2014 GAAP operating income was $30.1 million or 8.9% of revenue compared to $32.8 million or 10.3% in the year-ago quarter.

Income from operations on a constant currency basis, and adjusted for restructuring and impairment charges, was $32.5 million or 9.4% of adjusted revenue. Further adjusted for $2.4 million of incremental investment in sales and R&D, and expense related to the amortization of acquired intangibles, operating income was 10.2% compared to 10.4% in the year-ago quarter. CTS's decline in operating income impacted the operating margin by 85 basis points. Operating income from acquired companies in the fourth quarter was $2.5 million.

SG&A expense was 14.9% of revenue in the fourth quarter versus 16.1% in the same period last year. Despite the incremental investment in sales, our G&A expense is flattening, allowing for an improved SG&A expense-to-revenue ratio. Our fourth-quarter GAAP base tax rate was 27.8% compared to 27.6% for the same period last year. The effective tax rate for the full-year 2014 was 22.9%. Normalized, it was 19.8%.

The higher fourth-quarter tax rate was driven by an increase in US taxable income related to seasonal healthcare work and other income associated with a net reduction in acquisition-related contingent liabilities, primarily TSG. Fourth-quarter fully diluted GAAP earnings-per-share was $0.44 compared to $0.38 in the prior year period. Non-GAAP earnings-per-share was $0.46 compared to $0.43 in the same period last year.

Our cash flow from operations in the fourth quarter was $32.2 million compared to $61.4 million in the year-ago quarter. The year-over-year reduction is primarily due to an increase in DSO from 68 to 75 days on delayed payments from a shortlist of a large client receivable balance, which has since been collected.

Capital expenditures were $15.4 million in the fourth quarter, down from $18.5 million over the prior period. CapEx primarily related to demand-driven, new facility builds and expansion, investment in our cloud platforms, and other IT modernization initiatives. We continue to execute under our long-standing share repurchase program, repurchasing approximately 414,000 shares or nearly $9.8 million in the fourth quarter.

For the full-year, we repurchased approximately 2.4 million shares for $57.1 million, relatively unchanged over 2013. Excluding yesterday's $25 million Board-approved allowance increase, as of December 31, 2014, there were approximately 11.8 million remaining under the authorization.

Cash and total debt balances at quarter-end were $77.3 million and $105.9 million, respectively, resulting in a net debt position of $28.6 million. In the full-year 2014, we deployed approximately $100 million in share repurchases and acquisitions versus an estimated $70 million in 2013. This was offset by positive cash flow from operations.

Moving now to a review of our segments. Customer Management Services' fourth-quarter revenue was $250.1 million versus $230.6 million, up 8.4%. Adjusted to constant currency revenue, it was $256 million, up 10.9%. The growth was attributable to broad program expansions, particularly in healthcare, new program launches, and the Sofica group acquisition. Non-GAAP organic growth was 8.6%.

Operating income was $20.9 million or 8.3% compared to $20.5 million or 8.9% in the year-ago quarter. On a constant currency basis, and adjusted for $3.2 million in restructuring and impairment charges, incremental investments and expense related to the amortization of acquired intangibles, the operating margin was 9.6%. Capacity utilization also reached the highest level in years, increasing to 85% in the fourth quarter of 2014 compared to 83% in the prior-year.

Customer Growth Services' fourth-quarter revenue was $28.9 million, down 3.2% from $29.8 million in the year-ago period. The reduction in revenue is due to the timing of new business ramps and the timing of revenue recognition on outcome-based contracts. The 2014 full-year constant currency revenue growth rate was 15.5%, and bookings exceeded $40 million, supporting the continued growth in CGS's top line.

Given the amount of digitally-driven outcome-based customer acquisition bookings in 2014, and the seasonality of customer acquisition programs, we anticipate a fourth quarter to first quarter sequential decline in CGS's revenue, followed by sequential increases in each of the second, third, and fourth quarters. For full-year 2015, we expect this business to deliver double-digit year-over-year revenue growth rates in the second half.

We are increasingly transforming CGS's solution portfolio to include more results-based search to sales capabilities, including outcome-based digital sales and marketing. As these programs launch and scale, we expect continued improvement in our revenue growth rate. Despite the variability in revenue and continued technology investment, on a constant currency basis, operating income increased to $2 million in the fourth quarter compared to $1.8 million in the prior year.

CTS's revenue was $35.5 million in the fourth quarter of 2014, down from $41.6 million in the prior-year period. Operating income was $2.9 million in the fourth quarter, down from $6.1 million in the same period last year, but up sequentially from a loss of $286,000.

As we discussed last quarter, CTS's performance in 2014 was challenged by a short list of operating issues. This includes transitioning the Avaya platform from its small and midsize business space, into larger enterprise opportunities, and our focus on the fast-growing, subscription-based cloud market across both Avaya and Cisco platforms.

We made progress in our Avaya enterprise strategy over the last quarter, including the addition of Justin Ault, a career veteran in CX technology, who is now heading CTS sales and alternate channels. The integration of CTS's sales into our global markets and industries grew to drive improved cross-sell within the vertical sales units, and the redirection of CTS's sales teams to focus on penetrating CMS and CGS enterprise embedded base and new logos.

Clearly, the market for cloud-based customer experience solutions is accelerating. We are winning our share of the business. Industry analysts predict growth in this sector in the high-teens. Our total cloud backlog is $63 million, with $17 million estimated to be realized in 2015, up 70% from 2014's $10 million of cloud revenue.

The inclusion of cloud-based solutions in our revenue mix has a near-term impact on revenue growth and operating margin, as revenue is recorded over a longer period of time. The financial upside to cloud-based solutions includes higher margins driven by improvements in asset utilization and labor efficiency, as well as longer-term contracts.

Looking at 2015, we anticipate sequential revenue growth and margin expansion throughout the year, as we execute on our integration plans, invest in important cloud-based technologies, and expand our go-to-market strategy with our GMI sales organization. As with CGS, we expect CTS to return to double-digit revenue growth rates in the second half of 2015.

Customer Strategy Services' fourth-quarter revenue was $23.7 million, a significant increase from $16 million in the year-ago period. The growth was attributable to our acquisition of rogenSi, a global provider of learning and change management practices. Excluding acquisition contribution, revenue decreased by $1.8 million. The segment's operating profit was $4.5 million in Q4 2014 versus $4.4 million in the prior-year period.

Operating income margin was 19.2% in the fourth quarter of 2014 versus 27.2% last year, and 7.8% last quarter. The variability in the financial performance of the organic face in CSS was due to timing and the natural availability inherent in a consulting business. CSS bookings increased significantly in the fourth quarter and full-year. We entered 2015 with contracted backlog [up] 80% versus the prior year, indicating a solid year of growth for CSS into 2015.

In closing out 2014, I would highlight the following on an adjusted basis. Bookings grew 21%. Revenue grew 6.3%. Operating income grew 6.6%. And excluding CTS on an adjusted basis, CSS, CGS and CMS collectively grew revenue 8.5%, and operating income, 15%, inclusive of 90 basis points of incremental investments and acquisition-related amortization expense.

While we have much left to do in realizing double-digit revenue growth rates and operating margins, we saw a definite uptick in our performance in 2014, despite the challenges in CTS. Our forward view anticipates continuing this momentum.

We anticipate 2015 revenue between $1,315,000,000 and $1,325,000,000, excluding the additional acquisitions. This range anticipates approximately 3 percentage points of negative FX translation impact. Our 2015 operating income is expected to approximate 8.25% before asset impairment restructuring and acquisition-related charges.

The guided operating margin range includes $10 million of incremental sales, marketing and R&D. Absent the incremental investment, the operating margin would approximate 9%. We expect approximately 45% of our revenue and operating income in the first half of the year, and 55% in the second half. CMS is estimated to be 72% of the Company's revenue and the remaining segments 28%. We anticipate capital expenditures near 6% of revenue in 2015, with 70% expected for growth initiatives. The increase as a percentage of revenue reflects continued demand-driven facility builds and expansions, as well in technology-oriented investments.

Last, our estimated effective tax rate will range between 22% and 25% in 2015. We finished the year on a strong note across many important strategic and tactical fronts, demonstrating the accelerating importance of customer centricity, and the value derived from providing end-to-end customer engagement solutions. This journey requires thought leadership discipline, investment and patience.

Four years into our transformation, our integrated offerings are clearly a marketplace differentiator, and have undeniably transformed TeleTech beyond its core customer management platform by uniting value-oriented consulting expertise with best-in-class technology solutions and customer growth services. With solid growth in our 2014 bookings, a strong backlog of contracted business, and a growing sales pipeline, we are clearly benefiting from our strategy investments in innovation, acquisition and sales platform.

We are pleased with our progress, our financial strength, and the forward outlook of our business. Our actual and expected financial progress is allowing us to increase shareholder returns through continued stock repurchases and semiannual cash dividends.

I'll now turn the call back to Paul.

Thanks, Regina. As we open the call, we ask that you limit your questions to one or two at a time. Operator, you may now open the lines.

(Operator Instructions) Mike Malouf, Craig-Hallum.

A couple of questions. I'll keep it to two. Ken, I'm hoping maybe you could just give us a little bit of color on the acquisition environment out there? How is prices? And maybe in particular, where are you focusing your efforts these days? Thanks.

Hi, Mike? How are you? When we say acquisition, are we talking about acquisition of clients? Or are we talking about acquisition of companies?

M&A.

Oh, okay. I only hesitate just because I'm not sure -- I'm going to have to answer it in general terms. We don't typically discuss our M&A activities.

What I would just tell you is that we have a robust M&A pipeline. We are focused on continuing to strengthen geographies. We are focused on continuing to take capabilities that we have in various markets, and make sure that they are equal in every single market. We are clearly focused on the digital aspect of our business. We are clearly focused on the analytics aspect of our business.

And we are clearly focused on the technological side of our business. And, we are going to -- that's where we are going. And that's where you are going to see activity. So, I think that 2015 should be a pretty good year.

As it relates to -- did you ask a question about pricing?

Yes.

You know, I mean, I think you probably know the answer to this. I mean, everybody thinks their company is obviously very valuable. And what I would say to you is that we've got to go through a lot of hay to find a needle that strategically makes sense, and is going to be accretive.

And so, clearly, things are getting very pricey right now in this market. But the reality is, is that we still believe that there are a lot of strategic accretive fits out there that makes sense. And so we are going to keep our head down and try to do deals that are, for the most part, consistently accretive for our shareholders.

And could you just give us a couple of comments on the dividend? You know, the strategy behind that? What prompted it now versus -- at this point in your life cycle? And does it have any ramifications on perhaps the size and scope of your M&A program?

Well, I mean, I think if you look at our balance sheet, it's quite strong. It's probably one of the strongest in the industry. We have very little debt, net debt on our balance sheet. We have the ability to pretty much -- at the appropriate time, in theory, we could exercise all the way up to close to $1 billion in borrowings. And we are nowhere near that right now.

So, no, we don't really feel that it limits. As for the timing, I think that our attitude is the following -- that we want to demonstrate to our shareholders that we are going to do everything humanly possible for value creation. And so we have been consistent, more so than probably any public company in the last 10 years, of acquiring our stock.

We have recently been very consistent with acquiring companies. And we believe the third lever now is to pay a dividend. And so, this is really our reflection on our conviction of -- that our Company has tremendous cash-generating capabilities; that, personally, I believe the stock is obviously undervalued or we wouldn't be putting our money where our mouth is, and buying the stock day-in-and-day-out. And we just think that this is all part of the journey.

And you know, as for the timing, we just felt that it was time, based on the fact that we feel that we can accomplish purchasing our stock while still purchasing great companies, while also giving our shareholders the benefit of a dividend.

And then the last point that I'll make is that we've actually have several investors ask us why are we not paying a dividend? And we listen to our investors. And it really got us thinking as to why aren't we paying a dividend? We really -- it wasn't something that we were really very focused on. And so our Board debated it for multiple quarters, and we came to the conclusion that this was the best thing we could do.

Do you want to add anything, Regina?

Yes, I think the only other thing I would say, tacking onto that last piece, that it's not only our existing shareholders; as we meet with potential shareholders, it's a frequent topic. And given our affordability relative to cash flow, we think it's a good balance of certain shareholder returns in the near-term, as we patiently await market reward for our strategy mix and ultimate financial performance.

Great. Thanks a lot for the color. I appreciate it.

Thank you.

Tobey Sommer, SunTrust.

How much longer do you think it will take to get the sales force to a point where -- not any kind of incremental investment, but sort of noteworthy incremental investment, may be behind us? Thanks.

Yes, I guess I'll start. I would say to begin with, look, we are not fully satisfied, but I would look at a 21% increase in bookings as a noteworthy start to that momentum. You know, we started out to invest a total of around $12 million in sales, marketing and R&D in 2014, as we had challenges with additional incremental; as we had challenges with CTS. And because we've made a commitment to balance profitability as we do this transformation, we did pull back.

We feel we need that full investment. We pulled back to collectively around $9.3 million. You heard us say today we are going to invest another incremental $10 million going into next year. The lion's share of that is in --

Going into this year.

-- into 2015, sorry. You know, the majority of that is going into sales. We've filled out the CPU units, we are building out the sales execs and the client execs. And now, the other part of that strategy is to open up Mexico as a domestic market for us, to open up Asia-PAC.

So we feel this is another investment year. But as we turn into 2016, you'll stop hearing that, at least relative to sales, we think we'll have the platform in place.

But I think -- but I also think what's important is, is that you have the tracking point of looking at our bookings. And we are very, very conservative on our bookings, and obviously, their PWC weighs in on the measurement of how we do the bookings, et cetera.

And so what I would say to you is, is that we fully are confident that we are already receiving a return, as you look at what it was in 2013 versus what it was in 2014, and what we now see in our pipeline and what we believe will take place in 2015. So, we're not just making this investment haphazardly. We're making this investment based on the fact that we feel the market opportunities are absolutely there.

And if you had an opportunity to listen to what I was saying in my script, the gist of what I was saying is, is that we've entered a time that -- frankly, I've been doing this for 33 years, and I can't remember a time where I've seen more CEOs have a stronger sense of urgency of having to do something drastically different than what they are currently doing today.

So it's our intention, and our plan, and our will, that we are going to take advantage of that market opportunity that we see right in front of our face. And the only way to do that is to have more feet on the street, and more people in front of our prospective clients and our embedded base clients. And so, hence, the logic behind that.

I hope that helps. Thank you.

Yes, yes, it absolutely does. My second question relates to the intellectual property and how that is influencing sales and customer retention. Is there a way of expressing, for example, perhaps, new sales relative to new products supported by the intellectual property, new investments and maybe patents? Thanks.

That's a great question. And what I would just say to you is stay tuned. That is all part of the plan. You know, we are a big believer in not talking about something until we have very significant proof points. And what I would just simply tell you is, we have been telling you for many quarters that we are investing in this area, and that we are gaining traction. And we've now announced one of the companies, Humanafi, is out there. It's on the market. And we are very excited by the opportunity.

And in the not-too-distant future, we will start to share with you the kinds of impact that we are having, the amount of clients that are taking it up, the amount of revenue impact that it's having, et cetera. But suffice to say that we feel that it's premature at this point, because we are really just now in the market and just now launching multiple new clients on the platform.

So, that is clearly one example of where we will be showing that. Another area is in our Acquisition 360 product that we are -- we have currently launched, and are launching multiple clients on. And we will start to talk about that as well. But, you know, one step at a time and we don't want to get ahead of our skis. We don't want to build too much buzz and then create too much expectation.

Instead, what we want to do is make sure that we bed down the clients that we are launching, and that they are referenceable and very happy. And then we'll start to brag about what it is that we are accomplishing in the marketplace with it.

Okay, we'll stay tuned. Thank you.

Kevin McVeigh, Macquarie.

Thanks and congratulations. Hey, Ken, I wonder -- given a lot of the success you've had on kind of the evolution of the service offerings, has that helped reduce the client churn at all, in terms of just being net positive to revenue as a result of losing less clients out the door?

We believe so. But again, what I would say to you is, is that we are still, we believe, very early days in really demonstrating what these combined capabilities can do. But there is no question that clients are very sophisticated, and they measure us based on the outcomes that we deliver and the E to R that we deliver -- meaning expense to revenue.

And so, the more capability that we can show them that demonstrates better, deeper value, and better expense to revenue, the stickier the client becomes. It's just that simple. And what I tried to express in our script is, is that our goal is we want to get out of this penny-any per-minute type business, and we want to basically be delivering outcomes that are more variabilized, and that clients are more interested in achieving, instead of being more focused on what I would classify as sophisticated technology-enabled labor augmentation.

That's helpful. And then in terms of -- obviously, with the dividend and the buyback acquisitions, is there any way to think about just in absolute dollar level or range in terms of what the capital commitment would be in 2015? And just generally dividend versus -- obviously, the dividend we can calculate -- but versus buyback versus maybe acquisitions? Or is it really opportunistic on the deal side?

I mean, I would say that on the dividend, the Board has an intention that this will be an ongoing dividend. And we'll look every six months at that dividend, based on the circumstances at hand. But I think we've demonstrated those circumstances we will look to. We're very stable and very strong. So we wouldn't have initiated this if we didn't expect to continue to execute it, and have it grow as our cash flow grows. We think that's an important part of the shareholder return.

Buybacks -- what I would say is that we manage organic investment against the performance of the P&L. We'll continue to do that. That's first and foremost.

Second, you know, is in organic. And third, are opportunistically intending to buy back our shares. I mean, in no way is the use of our cash through a dividend that at $0.18, even on an annualized basis, is $20 million, $22 million -- in no way do we feel that that is something that we can't maintain while continuing to execute acquisitions and organic investment, as we have, while scaling these businesses and getting to our aspired double-digit profit rates.

Super. Thank you and congrats again.

Thank you.

(Operator Instructions) Bill Warmington, Wells Fargo.

So a question for you on the overall call center market and CMS. If you could talk a little bit about where you are seeing strength in the verticals, where you are seeing some weakness in the vertical? That looked like a pretty strong performance overall, so.

Well, just to reiterate, we are really not, quote/unquote, focusing on the call center market. I think that maybe many of the other companies you cover, that's their strength and their focus. We are truly focusing on much more of an end-to-end capability. So I'm not sure that my commentary would really be relevant as it relates to the call center marketplace.

Just remember, many of our technologies don't -- that we are providing on a cloud-based -- on a cloud basis, allow our clients to utilize the capability internally, and don't take advantage of our bricks and mortar. In addition to that, many of our technologies are also being offered by our clients to these call center companies.

So what I would just say to you is, is that, vertically, from a vertical standpoint, we are focused end-to-end on providing an outcome-based capability. The verticals that are strong, we are releasing strength in every major -- in every vertical. And we are -- there are certain ones that we are doubling down on, but I'm not prepared to really talk about the ones that we are doubling down on.

I would just simply tell you that we feel generally very good, especially in the United States where the economy is strong, where the consumer is finally kind of peeking its head out and taking advantage of buying things, et cetera. And so, overall, I would say across the board, we feel very good about the verticals, as I'm sure you are hearing just through other companies that you cover.

Sure. Then so the bookings being down sequentially, how do we interpret that?

I'm sorry -- could you?

The bookings sequentially. So, what I would say is, we are going to have variability quarter-over-quarter. When you look at the size of our bookings from $500,000 all the way to $30 million, obviously the quarters in which we are bringing over the $30 million bookings are going to be different. I think it's most important to look at it in half years or full years.

Okay. And then one last question, if I may. The -- how much -- what percentage of revenue and what percentage of operating income is coming from outcome-based contracts?

I would say that, at this point, it's still pretty nascent and it's a relatively small amount of our revenue. But what I would tell you is, is that a high percentage of our new deals that we are initiating definitely have more of that component. Our CGS group is moving much more towards outcome-based pricing. And that's, frankly, what our clients would like to get, because they are experiencing that with different channel partners.

So, what I would say to you is, is that it's building momentum and it's an area of focus, but more so in the CGS area than in the other areas. It goes without saying that CMS and even CSS all have outcome components, outcome bonuses, et cetera, but that's a little bit different than what we are -- what we've been explaining as it relates to what we are doing in the CGS area. Thank you.

Thank you very much.

Shlomo Rosenbaum, Stifel.

Thank you for taking my questions. Regina, what's the organic growth contemplated in the 2015 revenue guidance?

There's about 2 points of inorganic in that number. It's the annualization really of -- for the most part, the annualization of the rogen. We had them for a little over a quarter. So we've got about 2 points of the growth in our overall number that is acquisition-related.

So I should think of it as 3 points headwinds from currency, 2 points tailwind from M&A?

Yes.

Okay, good. And then, this is the first time I can recall since 2007, with the exception of the new statement period, that the 10-K wasn't out in conjunctions with the earnings. Is there anything we should be reading into that?

No. Actually, last year, we did it the same way. It's just really a matter of timeline. And I felt that we should get out with the numbers final. And obviously, additional work to get to the K. But that should be out in the next 8 to 10 business days. Want to be a little conservative, but expect it to be out by end of next week, if not early the following week.

Okay. And then just finally, when I think about the cash flow generation capability of the business on kind of on an ongoing basis, with the business that you've got right now, how should I think of that?

Look, I mean, I can understand the question based on the cash flows, both for the quarter and the year. I will tell you that we had abnormally cash caught up in AR. And we had some acquisitions, right, that added to some of our current assets. And then, we are building that managed service and cloud business, which adds to the prepaid.

So I can tell from a surface level -- I would say that from a surface level, that begs questions. But I -- when I look at where EBITDA will be into next year, you know, into the 13%, 14% level, and take that kind of cash-based, more cash-based, bank-based EBITDA, take out our CapEx, albeit a point higher than what it was in 2014, we have very strong cash flow. And I think as we look at 2016, you'll see a more normalized, very high EBITDA-to-cash conversion.

That CapEx is going towards the buildout of our cloud; the buildout of the R&D in the form of capitalized labor. And we do have a bit of an outlier in the CapEx this year around a very large contract that has been a client for over 20 years, where we are building out specific space for them. And that is built into a five-year contract with very good teeth in it. You know, a -- no term for convenience for three years, and then amortizing any costs that are left on the balance sheet, should they exit.

So, it's really an outlier, Shlomo. And expect to return in 2016; afterwards, through the buildout of the cloud, and this outlying super site that we are building, to more normalized levels.

Okay, great. Thank you.

Thank you.

Thank you. And at this time, we have no additional questions in queue. I would now like to hand over back to speakers.

Yes. This concludes our call today. Thank you, everyone, for your participation.

This concludes the TeleTech's fourth-quarter and full-year 2014 earnings conference call. You may disconnect at this time.